### 68583 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

**DEPARTMENT OF HEALTH AND**

**HUMAN SERVICES**

**Centers for Medicare & Medicaid**

**Services**

**42 CFR Part 433**

**[CMS–2346–P]**

**RIN 0938–AQ53**

**Medicaid; Federal Funding for Medicaid Eligibility Determination and** 

**Enrollment Activities**

**AGENCY :**  Centers for Medicare & Medicaid Services (CMS), HHS.

**ACTION :**  Proposed rule.

**SUMMARY :**  This proposed rule would revise Medicaid regulations for Mechanized Claims Processing and Information Retrieval Systems. Specifically, we are proposing to amend

the definition of Mechanized Claims Processing and Information Retrieval Systems to include systems used for eligibility determination, enrollment, and eligibility reporting activities. We propose to modify our regulations so

that the enhanced Federal financial participation (FFP) is available for design, development and installation or enhancement of eligibility determination systems until December 31, 2015, with enhanced FFP for maintenance and operations available for such systems beyond that date in certain circumstances. We also propose that all Medicaid Management Information Systems (MMISs) meet

certain defined standards and conditions in terms of timeliness, accuracy, efficiency, and integrity and that they achieve high positive levels of consumer experience, acceptance and

satisfaction in order to receive enhanced

FFP.

**DATES :**  To be assured consideration,

comments must be received at one of the addresses provided below, no later than 5 p.m. January 7, 2011.

**ADDRESSES :**  In commenting, please refer

to file code CMS–2346–P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX)

transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on this regulation

to http://www.regulations.gov. Follow

the ‘‘ Submit a comment’’ instructions.

2. By regular mail. You may mail written comments to the following

address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS–2346–P, P.O. Box 8016, Baltimore,

MD 21244–8016.

Please allow sufficient time for mailed

comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS–2346–P, Mail Stop C4–26–05, 7500 Security Boulevard, Baltimore, MD 21244–1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445– G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD—

Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244–1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786– 7195 in advance to schedule your

arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

**FOR FURTHER INFORMATION CONTACT :**  Richard Friedman, (410) 786–4451.

**SUPPLEMENTARY INFORMATION :** 

Inspection of Public Comments: All

comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential

business information that is included in a comment. We post all comments

received before the close of the comment period on the following Web site as soon as possible after they have

been received: http:// www.regulations.gov. Follow the search

instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of

the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1–800–743–3951.

I. Background

A. The Current State of the Medicaid Management Information System (MMIS)

A Medicaid management information system (MMIS) is a mechanized system of claims processing and information

retrieval used in State Medicaid programs under title XIX of the Social Security Act (the Act). The system is used to process Medicaid claims from providers and to retrieve and produce utilization data and management

information about medical care and

services furnished to Medicaid recipients. The system also is potentially eligible to receive enhanced administrative funding from the Federal government under section 1903(a)(3) of the Act. Specifically, section 1903(a)(3)(A)(i) of the Act provides that Federal financial participation (FFP) is available at 90 percent of expenditures for the design, development, or

installation of mechanized claims processing and information retrieval systems as the ‘‘ Secretary determines is likely to provide more efficient,

economical and effective administration of the plan and to be compatible with the claims processing and information retrieval systems utilized in the administration of title XVIII [that is, Medicare]. ’’ In addition, section 1903(a)(3)(B) provides for the availability of FFP at 75 percent of expenditures attributable to operating

the ‘‘ systems * * * of the type described in [section 1903(a)(3)] subparagraph (A)(i), ’’ which are approved by the Secretary and meet certain other requirements (including requirements relating to explanations of benefits). For purposes of this proposed rule, we refer to 90 percent and 75 percent FFP as

‘‘ enhanced ’’ FFP since it is greater than the 50 percent FFP available for most Medicaid administrative expenses. Finally, section 1903(r) of the Act places conditions on a State’s ability to receive Federal funding for automated data systems in the administration of the State plan.

In order to receive an enhanced match, the Secretary must find that the

mechanized claims and information retrieval system is adequate to provide


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efficient, economical, and effective administration of the State plan. The

Patient Protection and Affordable Care Act of 2010 (Pub. L. 111–148, as amended by the Health Care and Education Recovery Act of 2010; Pub. L. 111–152, together referred to as the Affordable Care Act) also made additional changes to the requirements within section 1903(r) of the Act relating to the reporting of data to the Secretary; these requirements will be discussed in separate rulemaking.

Our Federal regulations concerning mechanized claims processing and information retrieval systems are at 42 CFR part 433, subpart C. A State that chooses to develop, enhance, or replace its required system or subsystems must first submit for approval an Advanced Planning Document (APD). The general HHS requirements for approval of APDs are found at 45 CFR part 95, subpart F.

B. Availability of Enhanced FFP for Automated Eligibility Systems

Historically, Medicaid eligibility for many applicants and recipients was determined by an agency other than the State Medicaid agency; under section 1902(a)(10)(A)(i) of the Act, States were required to provide Medicaid to recipients under the Aid to Families with Dependent Children (AFDC) program, as well as recipients of the Supplemental Security Income (SSI) program. In these cases, eligibility

determinations were derived from the

cash welfare-assistance determination. As a result, States that maintained a Medicaid eligibility determination system usually integrated these systems into the public welfare systems. In 1989, we published a final rule on October 13, 1989 (54 FR 41966, effective November 13, 1989) excluding eligibility determination systems from the enhanced funding that was available under section 1903(a)(3) of the Act, reasoning that the close interrelationship between these cash assistance programs and Medicaid eligibility rendered such enhanced assistance redundant and unnecessary (54 FR 41966 through 41974). As a result, we revised the definition of mechanized claims processing and information retrieval systems to exclude eligibility determination systems.

We also indicated in the final rule that to receive any FFP for Medicaid purposes for an eligibility determination system after November 13, 1989, a State must submit an APD for funding in accordance with the requirements of 45 CFR part 95, subpart F. If we approved the APD, the State agency would receive 50 percent FFP for administrative costs under section 1903(a)(7) of the Act for the system’s design, development, and installation, and operation.

C. Changes in Medicaid Eligibility

Policies

Since promulgation of the 1989 regulation, a series of statutory changes have dramatically affected eligibility for Medicaid and how Medicaid eligibility is determined. Among other things, new eligibility coverage groups were created and expanded, and in 1996, Medicaid eligibility was ‘‘ de-linked ’’ from the receipt of cash assistance when the AFDC program was replaced by the Temporary Assistance to Needy Families (Pub. L. 104–193, enacted on July 1, 1997) (TANF) program.

With the passage of the Balanced Budget Act of 1997 (Pub. L. 105–33) (BBA), States were required to coordinate eligibility for and enrollment in Medicaid, with the new Children’s Health Insurance Program (CHIP) to

ensure enrollment of children in the appropriate program. With passage of

the ‘‘ Express Lane Eligibility ’’ provisions
in section 203 of the Children’s Health Insurance Reauthorization Program Reauthorization Act of 2009 (Pub. L. 111–3) (CHIPRA), States were provided with the option, and are encouraged, to coordinate and expedite eligibility for children in Medicaid and CHIP by using findings regarding income and other eligibility criteria made by other agencies, such as the Supplemental Nutrition Assistance Program, as the basis for Medicaid and CHIP eligibility adjudications.

With the passage of the Affordable Care Act, we expect that changes to eligibility policies and business processes would need to be adopted. States would need to apply new rules to adjudicate eligibility for the program; enroll millions of newly eligible individuals through multiple channels; renew eligibility for existing enrollees; operate seamlessly with newly authorized Health Insurance Exchanges whether run by the State or HHS if the State chooses not to operate a State Exchange (hereafter referred to as

‘‘ Exchanges ’’ ); participate in a system to verify information from applicants electronically; incorporate a streamlined application used to apply for multiple sources of coverage and health insurance assistance; and produce

notices and communications to applicants and beneficiaries concerning the process, outcomes, and their rights to dispute or appeal. We further anticipate, following consultation with States and other stakeholders,

additional standard Federal requirements for more timely and detailed reporting of eligibility and enrollment status statistics, including breakdowns by eligibility group, demographic characteristics, enrollment in managed care plans, and participation in waiver programs.

System transformations would be needed in most States to accomplish these changes. These systems

transformations should be undertaken in full partnership with Exchanges in order to meet coverage goals, minimize duplication, ensure effective reuse of infrastructure and applications, produce seamless enrollment for consumers, and ensure accuracy of program placements.

Extensive coordination and collaboration would be required between Exchanges and Medicaid, including on oversight and evaluation of the interoperability of the Exchange and Medicaid systems.

II. Provisions of the Proposed Regulations

A. Medicaid Eligibility Determinations

Because of the changes made by the Affordable Care Act with respect to Medicaid eligibility, as well as changes in Medicaid eligibility and business processes that have occurred since our 1989 final rule, we propose to consider Medicaid eligibility determinations to

be ‘‘ claims ’’ of eligibility that can be considered part of the MMIS systems that are potentially eligible for the enhanced 90 and 75 percent FFP under section 1903(a)(3) of the Act. This proposed policy would apply only upon the effective date of the subsequent final rule. Additionally, we note that

enhanced FFP does not eliminate the responsibility of States to ensure compliance with cost allocation principles outlined in OMB Circular

A–87.

Further, as explained below, enhanced FFP at the 90 percent rate for design, development, installation or

enhancement would be available for State expenditures only through calendar year (CY) 2015, even if work on approved APDs continues after 2015. Enhanced FFP at the 75 percent rate to maintain and operate systems that previously qualified for 90 percent FFP

would be available after 2015 if those systems continue to meet the requirements specified in this rule. Additionally, enhanced funding at 75 percent to maintain and operate systems meeting the standards and conditions is available prior to December 31, 2015, (but after the effective date of any final rule), in recognition of the fact that some States may have already invested in improvements that will allow systems to qualify without the need for additional enhanced development,


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design, installation or enhancement funding. For any State receiving enhanced FFP at 90 percent or 75 percent prior to December 31, 2015, systems must continue to meet the requirements specified in this rule in order to continue receiving 75 percent enhanced funding after December 31,

2015.

We are limiting the timeframe for which enhanced 90 percent FFP is available for design, development,

installation or enhancement of automated eligibility systems because we view the changes made by the

Affordable Care Act for the new eligibility rules in Medicaid as requiring immediate, substantial commitment to, and investment in, technologies. That is, we expect that changes to State systems would be completed with the start of the new Affordable Care Act provisions and support the operation of Exchanges on January 1, 2014. However, we realize that States may need to make additional changes to State systems to provide for additional functionality in support of Medicaid eligibility rule modifications. Thus, we are providing for an additional 2 years of 90 percent enhanced FFP so that States’ systems would have additional time to ensure the peak performance of their systems.

At the same time, once appropriate systems are deployed to support the eligibility changes in the Affordable Care Act, we anticipate significant efficiencies in both application maintenance and business operations. Thus, we believe that after CY 2015, 2 years after the Affordable Care Act changes have gone into effect, additional investments in the design, development, and installation of such systems would no longer continue to

result in ‘‘ more ’’ efficient, effective or

economical administration of the State plan, as required by section 1903(a)(3)(A)(i) of the Act.

Additional investments in State eligibility systems are unlikely to yield similar rates of improvement and a regular administrative match (that is 50 percent FFP for design, development, installation or enhancement) should be

sufficient for efficient and effective

administration of State Medicaid programs. We also note that ending enhanced funding in 2015 follows closely with the end of Federal grants for development of health insurance exchanges. States would need to incur costs for goods and services furnished no later than December 31, 2015 to receive 90 percent FFP for the design, development, installation or enhancement of an eligibility determination system. Further, we are proposing to limit the availability of 75 percent enhanced funding for maintenance and operations to those eligibility determination systems that have complied with the standards and conditions in this rule by December 31, 2015. As discussed above, the eligibility changes of the Affordable Care Act will require that States modify their eligibility systems in time to comply with all such eligibility changes,

and we believe that to meet the requirements of section 1903(a)(3)(A)(i) of the Act, all such modifications must be in place by December 31, 2015. If eligibility systems cannot meet our standards and conditions by such deadline, then we believe such systems will not be operating in a more efficient, economical or effective manner, because of their inability to timely meet the requirements of the Affordable Care Act

for seamless coordination with the Exchange and implementation of simplified Medicaid eligibility rules and expanded coverage. Therefore we believe their subsequent operation would not meet the statutory requirements that they result in a more efficient, economical and effective operation of the State plan.

B. Standards and Conditions for Receiving Enhanced Funding

Under sections 1903(a)(3)(A)(i) and 1903(a)(3)(B) of the Act, we are proposing standards and conditions that must be met by States in order for their Medicaid technology investments (including traditional claims processing systems, as well as eligibility systems) to be eligible for the enhanced match. These authorities provide that the enhanced FFP of 90 percent is not available unless the Secretary determines that a system is ‘‘ likely to provide more efficient, economical, and effective administration of the plan ’’ as described in section 1903(a)(3)(A)(i) of the Act. Similarly, section 1903(a)(3)(B) of the Act specifies that enhanced FFP of 75 percent is not available for maintenance or operations unless the system is ‘‘ of the type described in subparagraph (A)(i) ’’ and is approved by the Secretary).

Over the last 5 years CMS developed and implemented the Medicaid Information Technology Architecture (MITA). MITA is intended to foster integrated business and IT

transformation across the Medicaid enterprise to improve the administration of the Medicaid program. (The Medicaid enterprise is comprised of the Federal government, the States, and any trading partners who exchange Medicaid

transactions with either the States or the Federal government). We believe the MITA initiative has accelerated the pace of modernization and over time, this effort will drive States’ systems toward a widespread network of technology and processes that support improved State administration of the Medicaid program, with a focus on streamlining and simplifying the enrollment process, and improving health outcomes and administrative procedures for Medicaid

beneficiaries.

The MITA initiative began in 2005 with the concept of moving the design and development of Medicaid information systems away from the siloed, sub-system components that comprise a typical MMIS and moving to a Service Oriented Architecture (SOA) method of designing Medicaid information systems using discretely

identified and described business services to drive system requirements.

The MITA initiative uses an architecture framework—business, technical, and information—along with a business maturity model and process and planning guidelines, to provide a framework for the planned use of technology and infrastructure to meet the changing business needs of Medicaid programs. MITA enables all State Medicaid enterprises to meet common objectives within the Framework, while still supporting local needs unique to one particular State.

All MITA framework documents are available to the public at http:// www.cms.gov/MedicaidInfoTechArch/.

The MITA Framework describes the maturity model, policies, and procedures.

We know that there is not a ‘‘ one size
fits all ’’ technology solution to every business challenge and recognize that each technology investment must be viewed in light of existing, interrelated assets and their maturity. We also recognize that there are trade-offs concerning schedules, costs, risks, business goals, and other factors that should be considered when making technology investments. However, we

wish to ensure that enhanced FFP is approved only when infrastructure and application projects maximize the extent to which they utilize current technology development and deployment practices and produce reliable business outputs and outcomes.

We are proposing to define MITA at § 433.111(c) in this rule and we propose to build on the work of MITA by codifying that enhanced FFP (either at the 90 percent rate for design, development, installation or enhancement; or at the 75 percent rate for maintenance and operations) is only

available when certain standards and


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conditions are met. Specifically, we

articulate a set of standards and

conditions that States must commit to in

order to receive enhanced FFP:

• Use of a modular, flexible approach to systems development, including the use of open interfaces and exposed application programming interfaces; the separation of business rules from core programming; and the availability of

business rules in both human and machine readable formats. We believe that this commitment is extremely important in order to ensure that States can more easily change and maintain systems, as well as integrate and interoperate with a clinical and administrative ecosystem designed to deliver person- and citizen-centric

services and benefits.

• Align to and advance increasingly in MITA maturity for business, architecture, and data. We expect to see States continuing to make measurable progress in implementing their MITA roadmaps. Already the MITA investment by Federal, State, and private partners have allowed us to make important incremental improvements to share data and reuse business models, applications and components. However, it is critical to

build on and accelerate the modernization we have collectively begun under MITA, so that States

achieve the final vision of MITA and have a comprehensive framework with

which to meet the technical and business demands required by an environment that will increasingly rely on health information technology and the electronic exchange of healthcare information to improve health outcomes and lower program costs.

• Ensure alignment with, and incorporation of, industry standards: the Health Insurance Portability and Accountability Act of 1996 security, privacy and transaction standards; accessibility standards established

under section 508 of the Rehabilitation Act, or standards that provide greater accessibility for individuals with disabilities, and compliance with Federal civil rights laws; standards adopted by the Secretary under section 1104 of the Affordable Care Act; and standards and protocols adopted by the Secretary under section 1561 of the

Affordable Care Act.

We must ensure that Medicaid technology investments are made both to ensure the timely and reliable adoption of industry standards and to make most productive use of those standards as they become available. Use of industry standards promotes reuse, data exchange, and reduces administrative burden on patients, providers, and applicants. We would communicate applicable standards to States. Standards would be updated periodically to ensure conformance with the standards in the industry. States would be required to update systems and practices to adhere to evolving industry standards in order to remain eligible for enhanced FFP. Use of standards to promote accessibility for

individuals with disabilities ensures that Medicaid technology investments would be equally effective in providing

access to benefits and services for all users, and would comply with Federal civil rights laws prohibiting discrimination against individuals with disabilities, such as section 504 of the

Rehabilitation Act and Title II of the

Americans with Disabilities Act.

• Promote sharing, leverage, and reuse of Medicaid technologies and systems within and among States. We
would examine APDs to ensure that States make appropriate use and reuse of components and technologies

available off the shelf or with minimal

customization to maximize return on investment and minimize project risk.

We intend to work with States to identify promising State systems that can be leveraged and used by other States. We anticipate that we would be able to expedite review of APDs incorporating such successful models. Further, we would strongly encourage States to move to regional or multi-State solutions as often as possible, and we would help facilitate collaboration and communication among States. We would also scrutinize carefully any proposed investments in sub-State systems when we are asked to share in the costs of updating or maintaining multiple systems performing essentially

the same functions within the same

State.

• Support accurate and timely processing of claims (including claims of eligibility), adjudications, and effective communications with providers, beneficiaries, and the public. Ultimately, the test of an effective and efficient system is whether it supports

and enables an effective and efficient business process, producing and effectively communicating intended operational results with a high degree of reliability and accuracy. We do not believe that it would be appropriate for us to provide enhanced Federal funding for systems that are unable to support

desired business outcomes.

• Produce transaction data, reports, and performance information that would contribute to program evaluation, continuous improvement in business operations, and transparency and accountability. Systems should be able to electronically and accurately produce and expose data necessary for oversight, administration, evaluation, integrity, and transparency. This includes program data on claims, expenditures, and enrolled individuals; participation in waivers and plans; performance data, such as processing times, accuracy, and appeal results; and traditional systems standards such as availability and down

time.

We would develop a range of data and performance metrics on which States would be required to report on a regular basis, as a condition of receiving ongoing enhanced FFP for maintenance and operation.

• Ensure seamless coordination and integration with the Exchange(whether run by the State or Federal government), and allow interoperability with health information exchanges, public health agencies, human services programs, and community organizations providing

outreach and enrollment assistance

services.

We expect that a key outcome of our technology investments is a much higher degree of interaction and interoperability in order to maximize

value and minimize burden and costs on providers and beneficiaries. Additionally, we expect that technology investments must comply with standards to ensure security and accessibility consistent with current

Federal law and investments must comply with the requirements under existing Federal civil rights protections for all individuals in developing the system architecture.

We seek comments on these standards and conditions. In particular, we seek comments on the following:

• What types of Federal leadership, technical assistance, and sub-regulatory guidance would be helpful to support States as they come into compliance

with these standards and conditions.

• Whether this list of standards and conditions is sufficiently robust and complete to guide decisions on technology investments of the scope and

size of MMIS.

Further, to ensure that States have an opportunity to come into compliance with these requirements, we are proposing that States currently receiving enhanced FFP for MMIS have a period of transition to come into compliance

with the standards and conditions above. Under our proposed schedule, the following transition periods would apply:

• For new MMIS development (new APDs requesting 90 percent FFP for design, development, installation, and enhancement): No transition period. We believe all APD requests submitted after


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the effective date of the final rule must comply with all of our final standards

and conditions.

• For MMIS development already underway (approved APDs providing 90 percent enhanced FFP): 12-month transition period (beginning with the effective date of the final regulation) in which to submit an updated Implementation APD (IAPD) detailing how systems would be modified to meet the required conditions and standards. This transition period would allow systems that are currently being developed to come into compliance with our standard and conditions, while ensuring that new systems receiving Federal funding are eventually designed

in a manner that results in the most efficient use of technology.

• For maintenance and operations of MMIS currently receiving 75 percent

FFP: 36-month transition period (beginning with the effective date of the final regulation) in which to submit an IAPD with plans to upgrade or modify systems to meet the required conditions

and standards.

• Eligibility systems (currently receiving 50 percent for development and maintenance and operations): Because eligibility systems are not currently receiving enhanced funding, we propose no transition period for new requests for enhanced funding for eligibility systems. Any APDs requesting enhanced funding for eligibility systems funding following the effective date of this regulation would

have to meet the standards and conditions above. States with eligibility systems currently under development (approved APDs providing 50 percent FFP) can update their APDs to reflect how they would comply with these

standards and conditions in order to begin receiving 90 percent FFP. Similarly, eligibility systems currently receiving 50 percent FFP for State expenditures would need to comply

with our final standards and conditions to receive a 75-percent FFP.

We request comments on this proposed transition schedule and whether the transition periods should be reduced or extended. We also request comments on how, during the transition period and beyond, we can provide strong Federal leadership by fostering collaboration among States, identifying and disseminating best practices, creating Federal models or components ( e.g., the Office of Consumer Information and Insurance Oversight’s (OCIIO) Cooperative Agreement providing funding to create efficiencies in the design, development, and implementation of the Exchange IT systems), and assisting individual

States.

Lastly, we are proposing that these

standards and conditions be enforced through both front-end and back-end review processes. Front-end review would entail APD review and prior approval processes where States apply for enhanced match before entering into IT investment projects. Back-end

reviews would entail certifications of the systems capabilities, as well as ongoing performance monitoring.

C. Reviews and Performance Monitoring of MMISs

Previously, regulations at § 433.119

indicated that we would review at least once every 3 years each system operation initially approved under § 433.114 and, based on the results of the review, reapprove it for FFP at 75 percent of expenditures if certain

standards and conditions were met. The 3-year system performance reviews (SPRs) served as an evaluation instrument in determining the extent to which an MMIS performance is

sustained after the initial certification. As part of SPRs, we determined if the system program logic was accurately and timely processing claims and payment information according to

standards determined in Federal regulation. Subsequent recertification of a State’s MMIS was based upon the results of the SPR. Prior to 1998, SPRs were performed annually.

We stopped performing such periodic

reviews after enactment of section 4753 of the BBA ( See section 11100 of the State Medicaid Manual). SPRs currently are performed only as part of focused

reviews. The BBA also eliminated references to development and application of performance standardsused to conduct periodic standardsbased reviews of previously certified MMISs. As such, many of the provisions in 42 CFR part 433, subpart C should have been revised to comply with the repealed requirements; for example, much of the language included in § 433.119 through § 433.121 references

the SPRs and the reduction of FFP in

the event that States did not have systems that remained capable of processing claims and payments and/or were not performing well in completing

these activities.

While the BBA eliminated the mandate that we perform SPRs, we do

not believe it removed our discretion to perform reviews under our general authority to ensure that MMISs continue to operate in a manner that complies with Federal law, regulations, and guidance. The Secretary has authority to perform periodic reviews of MMIS systems (including eligibility determination systems receiving an enhanced FFP) to ensure that systems receiving enhanced FFP continue to meet the requirements of section 1903(a)(3) of the Act and that they continue to provide efficient, economical, and effective administration of the plan. Section 1903(a)(3)(B) of the Act allows for 75 percent FFP for the sums expended that

are ‘‘ attributable to the operation of systems * * * of the type described in subparagraph (A)(i). ’’ The type of system

described in ‘‘ subparagraph (A)(i) ’’ is one that, on an ongoing basis, results in

‘‘ more efficient, economical and effective administration of the plan. ’’ In addition, the Secretary has authority under section 1903(r) of the Act to ensure continuing compliance with the requirements of that section.

Given our proposed modifications to part 433 of our regulations, as well as

the new enhanced FFP for certain eligibility determination systems, we believe it is prudent for us to clearly state the expectation that ongoing successful performance is a necessary condition for receipt of the 75 percent FFP for operations and maintenance. We plan to establish standards and

conditions that would ensure that all MMIS systems receiving enhanced FFP are complying with regulatory andstatutory requirements. Through subregulatory guidance, we would explain

further how we would measure whether the requirements are being met, such as through a core set of standards and

conditions that focuses on the dimensions for systems that

communicate to beneficiaries. We would also explain how States can meet any such performance measures.

For example, we would measure how a system meets requirements for providing notices to beneficiaries, claims and applications intake and acceptance, efficient timely and accurate processing of claims, applications and renewals, proper determinations, and experience with appeals, interoperability with Exchanges, as well as traditional systems standards such as availability and down time. We expect to see such data automatically generated by the systems in which we invest, with

standards and conditions established in

consultation with stakeholders and based on industry experience.

Additionally, we propose to evaluate systems based upon their interoperability with other Federal and State health programs. Thus, in operating their systems, States would need to ensure that they consult documents articulating the


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Department’s strategy on interoperability, such as the Guidance for Exchange and Medicaid Information Technology Systems.

We would expect that any failures or

deficiencies would be the basis for investigation and opportunity for corrective action before making a

determination that enhanced FFP would

be discontinued.

Therefore, we propose to modify §§ 433.119 through 433.121 to eliminate any reference to SPRs but, more importantly, to reflect this requirement for performance monitoring and review. We are requesting comments on this proposal, as well as on the types of

standards and conditions that should be employed initially and over time.

Additionally, States should consider that we propose to evaluate systems and consider interoperability with other Federal and State health programs. Thus, States should consider other

documents that articulate the Department’s strategy such as the Guidance for Exchange and Medicaid Information Technology Systems and continue to consider such guidance in meeting the requirements of this proposed rule.

D. Partial Systems Improvements or

Modernizations

Throughout this proposed rule, we

have used the word ‘‘ system ’’ or

‘‘ technology ’’ to refer to what might well be a system of systems maintained in States in support of MMIS functions. We recognize that a modernization agenda in such a State might well move in phases. However, States submitting partial system updates would need to submit and have an approved roadmap for achieving full compliance with the

standards and conditions in this regulation. We would track progress against approved roadmap when determining if system updates meet the

standards and conditions for the enhanced match. We also recognize that some enhancements currently eligible for enhanced funding are intended to satisfy a specific requirement or to address a compliance issue, for example, ICD–10 or implementation of the National Correct Coding Initiative.

We invite comments on alternative approaches to best address these cases in applying our standards and conditions or performance monitoring.

E. Other Technical Changes to Federal Regulations at 42 CFR Part 433 Subpart C—Mechanized Claims Processing and Information Retrieval Systems

Since the enactment of the BBA, other provisions of our regulations have since been superseded. For example, regulations at § 433.113 (referencing the

need to have mechanized claims processing and information retrieval systems by a certain deadline, or face

reduced Federal Medicaid funds as a consequence) and § 433.130 (referencing waiver provisions for qualifying States with a certain 1976 population and expenditures) no longer apply. As we are revising our regulations to provide for the enhanced FFP for systems that perform eligibility and enrollment activities, we propose to also revise other provisions in part 433, subpart C to conform to the proposals set out in this rule. Thus, we are proposing to delete §§ 433.113 and 433.130 in their entirety, and references to the provisions in these sections that we are deleting.

Specifically, we propose to add a new definition to § 433.111 at (c) to include

MITA. MITA is both an initiative and a

framework. It is a national framework to support improved systems development and health care management for the Medicaid enterprise. It is an initiative to establish national guidelines for technologies and processes that enable improved program administration for the Medicaid enterprise. The MITA

initiative includes an architecture framework, models, processes, and planning guidelines for enabling State Medicaid enterprises to meet common objectives with the framework while supporting unique local needs.

Further, we propose to amend § 433.111(b)(3) to eliminate the requirement that ‘‘ Eligibility determination systems are not part of mechanized claims processing and information retrieval systems or enhancements to those systems. ’’ This, in effect, would mean that, once the subsequent final rule is effective, mechanized claims processing and information retrieval systems would include eligibility determination systems, including the allocated Medicaid portion of integrated eligibility determination systems. We note that eligibility determination systems would be eligible for the 90 and 75 percent FFP only after the effective

date of our final rule.

We also propose to eliminate the provision at § 433.112(c), which currently states that ‘‘ eligibility determination systems are not part of mechanized claims processing and information retrieval systems and are not eligible for 75 percent FFP under this Subpart. These systems are also not eligible for 90 percent FFP for any APD approved after November 13, 1989. ’’

We propose to add language to § 433.112 to indicate that 90 percent and 75 percent FFP would be available for the design, development, installation or enhancement, and maintenance and operation (respectively) of mechanized claims processing systems, including those that perform eligibility determination and enrollment activities, as well as the Medicaid portion of integrated eligibility determination systems, if such systems meet our standards and conditions. (The 90 percent FFP for eligibility determination systems would be available only for a time-limited period, and the 75 percent FFP for eligibility determinations would be available only for those systems that come into compliance with the

standards and conditions before the end of that time-limited period.)

By amending § 433.112, 90 percent and 75 percent FFP for a State’s reasonable administrative expenditures for the design, development, installation or enhancement, and maintenance and operations to mechanized claims processing and information retrieval systems, (MMISs), including those that perform eligibility determination and enrollment activities, as well as the Medicaid portion of eligibility determination systems, would be available only if the APD is approved by us before the State’s expenditure of funds and if the system meets the

standards and conditions. For those systems that are currently approved for 90 percent FFP, we would provide a transition period of 12 months for States to submit an IAPD to modify and upgrade systems meet the standards and conditions established by this rule. For those systems that are already approved and currently receiving 75 percent FFP for maintenance and operations, the States would be required to submit an IAPD to modify and upgrade systems to

meet the standards and conditions

within 36 months. Both transition periods would begin with the effective date of the subsequent final rule. New systems seeking 90 percent FFP would need to demonstrate that they would

meet all standards and conditions established by this rule. Eligibility determination systems currently operating would need to come into compliance with the standards and conditions in order to begin receiving 75 percent FFP for State expenditures. We believe this would provide States with a reasonable period of transition while still ensuring that State systems move expeditiously towards improvement and advanced technology.

States would be required to supply

information and demonstrate consideration of the following items to CMS for review and approval and as part of the APD before we would grant approval of enhanced funding. We


### 68589 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

would scrutinize all proposed

investments and would decline to approve enhanced funding (resulting in 50 percent FFP) for proposals that do

not demonstrate careful consideration and application of these standards and

conditions. States would ensure that MMIS systems, including those that perform eligibility determinations and enrollment activities (as well as the Medicaid portion of eligibility determination systems) would be required to meet the following requirements:

(1) Use a modular, flexible approach to systems development, including the use of open interfaces and exposed application programming interfaces; the separation of business rules from core programming, available in both human

and machine readable formats.

(2) Align to and advance increasingly in MITA maturity for business, architecture, and data.

(3) Ensure alignment with, and incorporation of, industry standards: The Health Insurance Portability and Accountability Act of 1996 privacy, security, and transaction standards; accessibility standards established

under section 508 of the Rehabilitation Act, or standards that provide greater accessibility for individuals with disabilities, and compliance with Federal civil rights laws; standards adopted by the Secretary under section 1104 of the Affordable Care Act; and standards and protocols adopted by the Secretary under section 1561 of the

Affordable Care Act.

(4) Promote sharing, leverage, and reuse of Medicaid technologies and systems within and among States.

(5) Support accurate and timely processing of claims (including claims of eligibility), adjudications, and

effective communications with providers, beneficiaries, and the public.

(6) Produce transaction data, reports, and performance information that would contribute to program evaluation, continuous improvement in business operations, and transparency and accountability.

(7) Ensure seamless coordination and integration with the Exchange, and allow interoperability with health information exchanges, public health agencies, human services programs, and community organizations providing

outreach and enrollment assistance

services.

States can also choose to continue as they currently operate and receive 50 percent matching. However, this would not change the need for States to meet the substantive requirements of Federal legislation. Further, we are proposing to codify at § 433.112(c) that we would provide 90 percent FFP for the design, development, installation or enhancement of an eligibility determination system only before December 31, 2015, even if work on an approved APD continues after 2015.

We believe that changes to State systems would be completed with the

start of the new Affordable Care Act and support the operation of Exchanges on January 1, 2014. However, we realize that States may need to make additional changes to State systems to provide for additional functionality in support of the Exchanges, and/or Medicaid and CHIP eligibility expansions. Thus, we are providing for an additional 2 years of 90 percent enhanced FFP so that States’ systems are provided with

additional time to ensure the performance and efficiency of their
systems.

States would need to incur costs for goods and services furnished no later than December 31, 2015 to receive 90 percent FFP for the design, development, installation or enhancement of an eligibility determination system.

Lastly, we propose to revise § 433.119 to account for performance monitoring

and reviews and to make related conforming changes to part 433.

III. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to provide 60- day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate

whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the

information collection burden.

• The quality, utility, and clarity of

the information to be collected.

• Recommendations to minimize the

information collection burden on the affected public, including automated collection techniques.

The changes specified in this proposed rule do not impose any new reporting, recordkeeping or disclosure requirements. States already submit to us for review and approval APDs for funding for automated data processing in accordance with Federal regulations at 45 CFR part 95, subpart F. The

burden associated with the

aforementioned information collection requirements is currently approved under OCN 0938–1088 and expires May 31, 2013. We are, however, requesting comments on our analysis; that is, that the specific requirements imposed by this rule do not mandate any additional information collection requirements on

States.

IV. Response to Comments

Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the **DATES** section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Overall Impact

The estimated costs of the Federalshare for Medicaid administration have

been reflected in the Mid-Session

Review of the FY 2011 President’s Budget.

We have examined the proposed impacts of this rule as required by Executive Order 12866, the Regulatory Flexibility Act (RFA), section 1102(b) of the Act regarding rural hospital impacts, the Unfunded Mandates Reform Act, Executive Order 13132 on Federalism, and the Congressional Review Act.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for rules with economically significant effects ($100 million or more in any 1 year). This proposed rule is anticipated to have an annual effect on the economy of $100 million or more, making it an economically significant rule under the Executive Order and a major rule under the Congressional Review Act. Accordingly, we have prepared a RIA that to the best of our ability presents the costs and benefits of the proposed

rule.

States could continue to receive the traditional 50 percent FFP for reasonable administrative expenditures for designing, developing, installing, or enhancing the Medicaid portion of their integrated eligibility determination


### 68590 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

systems. Similarly, States could continue to receive 50 percent FFP for expenditures associated with the maintenance and operation of such
systems.

This proposed rule addresses the impact related to enhanced FFP for mechanized claims processing and information retrieval systems, including those that perform eligibility determination and enrollment activities, as well as the Medicaid portion of integrated eligibility determination systems that the Secretary determines are likely to provide more efficient, economical, and effective administration of the State plan.

In projecting the impact to the Federal government and State Medicaid agencies, we considered how the proposed standards and conditions on MMIS and the availability of enhanced match for State eligibility systems through CY 2015 would impact State investments over the 10-year period of 2011 through 2020. As discussed further below, we considered the expected costs to the Federal government of providing the enhanced match rate, changes in state investments due to the application

of standards and conditions on MMIS (including eligibility systems), and possible savings as a result of the use of more modern, reusable, and efficient technologies.

B. Potential Savings

We considered a number of ways in which application of the standards and conditions, including increased use of MITA, could result in savings; however, as no States have yet reached MITA maturity, it is difficult to predict the savings that may accrue over any certain

timeframe. These areas include the following:

(1) Modular technology solutions: As States, or groups of States, would begin to develop ‘‘ modular ’’ technology solutions, these solutions could be used by others through a ‘‘ plug and play ’’ approach, in which pieces of a new

MMIS would not need to be reinvented from scratch every time, but rather, could be incorporated into the MMIS

framework.

We assume that savings associated with reusable technology could be achieved in both the development and operation of new systems. We expect that States would dispense with the need to engage in significant requirements analyses and the need to pay for new modules to be built when

there are successful models around the country that they can draw down from

a ‘‘ technology bank’’ maintained by the Federal or State governments. (2) Increased use of industry standards and open source technologies: While HIPAA

administrative transaction standards have existed for 5 to 7 years, use of more specific industry standards to build new systems would allow such systems to exchange information seamlessly—a major goal of the Affordable Care Act, and one that is the explicit purpose of

the standards work envisioned within

section 1561 of the Act. We also believe that more open source technology would encourage the development of

software solutions that address the needs of a variety of diverse activities— such as eligibility, member enrollment, and pharmacy analysis of drug claims. Software that is sufficiently flexible to meet different needs and perform

different functions could result in cost savings, as States are able to use the systems without making major adaptations to them.

(3) Maintenance and operations: As States take up the changes in this proposed rule, the maintenance/ operation costs of new systems should

decrease. Less maintenance should be required than that necessary to reengineer special, highly customized systems every time there is a new regulatory or legal requirement.

(4) Reengineering business processes,more Web-based solutions, serviceoriented architecture (SOA): Savings are likely to result from the modular design and operation of systems, combined

with use of standardized business processes, as States are be compelled to rethink and streamline processes as a result of greater reliance on technology.

C. Calculation of MMIS Costs

MMIS costs are estimated at approximately $10.0 billion over the 5- year budget window and $23.0 billion over the 10-year budget window. These costs represent only the Federal share.

To calculate the impact of the regulation on MMIS costs, we assumed that new systems on average would cost $150 million over 3 years for each State ($50 million total cost per year, or $45 million Federal costs at 90 percent FFP per year). We assumed ten States have sophisticated systems that are very close to meeting the proposed regulation standards. As a result, we assumed the remaining 41 States would have approved APDs in place to replace or update their MMIS between FY 2011 and FY 2013 to comply with the new regulation standards and conditions.

We assumed that early adopter States would see increased development, design, and installation costs, whereas late adopter States would see increased development, design, and installation savings as they are able to take advantage of efficiencies gained by the early adopter States. Specifically, for those States that update or build new systems in FY 2011 and FY 2012, we assumed a 10 percent annual cost increase to new MMIS systems for design, development, and installation. For those States that build new systems in FY 2013 and FY 2014, we assumed a 5 percent annual savings to new MMIS systems for design, development, and

installation.

While it is difficult to predict State behavior, we believe all States would comply with the standards and conditions proposed in this regulation to receive the 90 percent FFP, and have assumed that for the purpose of these

estimates.

For maintenance, we assumed those States that have implemented the new regulation requirements would see a 20 percent annual savings, and for operations, we assumed those States that have implemented the new regulation requirements would see a 5 percent annual savings.

Based on these assumptions, we estimate the net Federal budgetary impact on baseline MMIS costs from FY 2011 through 2015 of implementing the proposed regulation is approximately $1.1 billion, and the net Federal budgetary impact from FY 2011 through 2020 is approximately $557 million in savings.

D. Calculation of Eligibility Systems

Costs

For eligibility systems, we applied the same methodology we used to calculate

net Federal costs to MMIS under the proposed regulation.

In order to meet the requirements of the Affordable Care Act, States would build new systems or modernize existing systems. Rather, most States

will add new functionalities to interface with the Exchanges and implement new adaptability standards and conditions (such as incorporation of new mandated eligibility categories). We assume baseline costs for development, design, and installation at 50 percent FFP for all States are approximately $815 million from FY 2011 through 2015 and $1.1 billion from FY 2011 through 2020. Eligibility systems costs for maintenance and operations at 50 percent for all States are approximately $1.2 billion from FY 2011 through 2015 and $2.7 billion from FY 2011 through 2020. These costs represent only the

Federal share.

To calculate the impact of the regulation, we assumed that new systems on average would cost $50 million over 3 years for each State


### 68591 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

($16.7 million total cost per year, or $15 million Federal costs at 90 percent FFP per year). We assumed that 25 States would replace their eligibility systems in FY 2011 through CY 2015. We

assumed no States would build new systems past FY 2014 (beyond what is assumed in the baseline) due to the timing of the start of major coverage provisions in the Affordable Care Act, the length of time needed to build new systems (approximately 3 years), and the enhanced match ending after CY 2015. For maintenance, we assumed States that have implemented new systems meeting the required standards and conditions would see a 20 percent annual savings, and for operations, we

assumed those States that have implemented the new systems would see a 5 percent annual savings. These assumptions are consistent with our approach for savings under MMIS in the proposed regulation.

The net Federal cost impact from FY 2011 through 2015 of implementing the proposed regulation on eligibility systems is approximately $2.2 billion,

and the net Federal cost from FY 2011 through 2020 is $2.9 billion. These costs represent only the Federal share.

E. Total Net Cost Impact

Combining the impact of the proposed regulation, the total net Federal cost impact is approximately $3.3 billion for FY 2011 through 2015 and approximately $2.3 billion for FY 2011 through 2020. We see lower costs over the 10-year budget window due to the increased savings to MMIS over time.

Aligned with these Federal net costs, States will see a corresponding decrease

in their net State share due to the enhanced Federal match for eligibility systems they will receive through CY 2015 and the benefits accrued to their systems by putting in place the set of

standards and conditions articulated in this proposed regulation. Combining the impact of the proposed regulation, the total net State budget impact is approximately $792.5 million in savings for FY 2011 through 2015 and approximately $1.9 billion in savings for FY 2011 through 2020. Similar to the Federal budget impact, we expect to see higher savings achieved by States over the 10-year budget window due to the increased savings to MMIS over time.

The projections in this analysis are subject to considerable uncertainty, as they reflect projected costs based on technology and innovation. While we

believe that advancements in technology would likely have an impact on States’ systems, it is difficult to predict with certainty how significant the technology advancements may be and how they would affect State systems. For example, we have worked for many years developing the MITA maturity model. We believe that States should adopt the MITA framework as the basis for all MMIS replacements and major system upgrades related to the MMIS, and while we are requiring that

States move to a MITA framework in order to receive enhanced funding, to

date there are no States that have reached full MITA maturity. Consequently, having no States at full MITA maturity would indicate that it takes time, money and considerable effort for States to make changes to their current technology.

Additional uncertainty exists because we are unsure of the rate of adoption for States to make the changes in this proposed rule. The enhanced FFP is available for approximately 5 years, from CY 2011 through CY 2015, and States could upgrade or replace their systems at any point within the 5-year period. Further, States may simply choose to make moderate changes to existing systems, and even with the 90 and 75 percent enhanced FFP, such moderate changes could be less costly overall for States than replacing their
systems.

Additional uncertainty exists about the rate of State adoption since some States may consider the costs needed to move to a more advanced system to be too high to undertake such a project. Similarly, States may decide not to make changes due to implementation of performance requirements and the performance reviews.

We acknowledge that there are uncertainties regarding our assumptions, including State behavior,

and the associated cost estimates with respect to states implementing new systems within the timeframe assessed. However, we have offered our estimates with a 25 percent upper and lower range to capture such uncertainty in actual implementation outcomes. Due to a

number of uncertainties in our assumptions, we believe a range of estimates better represents the net cost impact of this proposed regulation. Tables 1 and 2 represent a 25 percent range for these aggregate net costs to the Federal and State government, respectively. It is important to point out that we believe that systems transformation is necessary to meet the

vision of the Affordable Care Act and consequently, these costs are necessary and would provide for efficient systems that in the end would provide for more

efficient and effective administration of the State plan. The separate impacts to MMIS and eligibility systems are

summarized below.



### TABLE 

### 1—N ET 

### F EDERAL 

### C OST 

### I MPACT OF 

### P ROPOSED 

### R EGULATION

[Dollars in millions*]

FY 2011–2020

MMIS (excluding Eligibility) ................................................................................................... ......................................................... (417.4)–(695.7) Eligibility Systems ............................................................................................................ .............................................................. 2,154.6–3,591.0

Total ........................................................................................................................................................................................ 1,737.2–2,895.3

* Numbers in parentheses represent savings to the Federal Government.



### TABLE 

### 1.1—N ET 

### F EDERAL 

### C OST 

### I MPACT OF 

### P ROPOSED 

### R EGULATION BY 

### F ISCAL 

### Y EAR
[Dollars in millions*]

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011–2020

MMIS (excluding

Eligibility) ............ 231.1 469.4 435.6 54.3 (83.0) (322.6 ) (329.0 ) (333.1) (337.4) (341.8) (556.6) Eligibility Systems 328.9 436.7 634.6 469.3 337.4 127.9 130.5 133.1 135.8 138.5 2,872.8

Total ............... 560.0 906.1 1,070.2 523.6 254.4 (194.7) (198.5 ) (200.0) (201.6) (203.3) 2,316.2

* Numbers in parentheses represent savings to the Federal Government.


### 68592 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

TABLE 

### 2—N ET 

### S TATE 

### C OST 

### I MPACT OF 

### P ROPOSED 

### R EGULATION

[Dollars in millions *]

FY 2011–2020

MMIS (excluding Eligibility) ................................................................................................... ......................................................... (170.6)–(284.4) Eligibility Systems ............................................................................................................ .............................................................. (1,255.4)– (2,092.3) Total ............................................................................................................................................................................................... (1,426.0)– (2,376.7)

* Numbers in parentheses represent savings to State governments.



### TABLE 

### 2.1—N ET 

### S TATE 

### C OST 

### I MPACT OF 

### P ROPOSED 

### R EGULATION BY 

### F ISCAL 

### Y EAR

[Dollars in millions *]

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011–2020

MMIS (excluding Eligibility) ......... 25.7 52.2 48.4 1.3 (24.1) (61.6) (65.2) (66.6) (68.0) (69.5) (227.5) Eligibility Systems ....................... (285.6) (276.7) (258.0) (139.9) 64.3 (149.5) (152.5) (155.5) (158.6) (161.8) (1,673.8)

Total ..................................... (259.9) (224.6) (209.6 ) (138.6) 40.2 (211.1) (217.7) (222.1) (226.6) (231.3) (1,901.3) * Numbers in parentheses represent savings to State Governments.

F. Regulatory Flexibility Analysis

The Regulatory Flexibility Act (RFA) requires agencies to prepare an Initial Regulatory Flexibility Analysis to describe and analyze the impact of proposed rule on small entities unless the Secretary can certify that the regulation would not have a significant impact on a substantial number of small entities. In the healthcare sector, Small

Business Administration size standards define a small entity as one with between $7 million and $34 million in annual revenues. For the purposes of the RFA, essentially all non-profit organizations are considered small entities, regardless of size. Individuals

and States are not included in the definition of a small entity.

Since this rule would affect States, which are not considered small entities, the Secretary has determined that this proposed rule would not be likely to have a significant economic impact on

a substantial number of small entities. Therefore, we have not prepared a regulatory flexibility analysis.

Additionally, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operation of a

substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has

fewer than 100 beds. We are not preparing an analysis for section 1102(b)

of the Act because we have determined

that this rule would not have a significant impact on the operations of

a substantial amount of small rural hospitals. There is no negative impact on the program or on small businesses. Section 202 of the Unfunded
Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditures in any one year by State, local, or tribal governments, in the aggregate, or by the private sector of $135 million. This rule does not mandate expenditures by the State governments, local governments, tribal governments, or the private sector. This rule provides that States can
receive enhanced FFP if States ensure that the mechanized claims processing and information retrieval systems, (MMISs), including—for a limited time—those that perform eligibility determination and enrollment activities, as well as the Medicaid portion of integrated eligibility determination systems, meet with certain conditions including migrating to the MITA framework and meeting certain performance requirements. This is a voluntary activity; i.e., States can
continue to receive the traditional 50 percent FFP match rate for reasonable administrative expenditures for the design, development, or enhancement and maintenance and operations to the Medicaid portion of integrated eligibility determination systems in order to make eligibility determinations for Title XIX. This rule imposes no
substantial mandates on States. The State role in determining Medicaid eligibility is dependent upon the population type; specifically, some populations such as the elderly, blind, and disabled are typically determined by the Medicaid State agency whereas other population types may have theirMedicaid eligibility determined by cashassistance programs. Mechanized claims processing and information retrieval systems, including those that perform eligibility determination and enrollment activities and the Medicaid portion of integrated eligibility determination systems, at a minimum, will need to be updated. However, providing 90 percent FFP for design, development, and installation or 75 percent FFP for maintenance and operations of such systems reduces the financial burden on States to 10 percent of the costs compared to the 50 percent financial burden currently in place. Specifically, while this entails certain procedural responsibilities, these activities do not involve substantial State expense; providing 90 percent and 75 percent FFP reduces the total State outlay.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. We wish to note again that this is a voluntary activity and as such this regulation does not mandate any direct costs on State or local governments. Consequently, the requirements of

Executive Order 13132 are not applicable.

G. Alternatives Considered

We considered that an alternative to our proposed rule would be that we not provide enhanced match for State systems builds and not provide Federal standards and conditions. In fact, States

could continue to receive the traditional 50 percent FFP for reasonable administrative expenditures for designing, developing, installing, or enhancing Medicaid eligibility determination systems. Similarly, States could continue to receive 50 percent FFP for expenditures associated with


### 68593 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

the maintenance and operation of such
systems.

However, States must continue to meet the requirements of Federal legislation. Since the Affordable Care Act significantly alters Medicaid eligibility and requires coordination with the Exchanges, it is imperative that States have the resources and systems to be able to meet this challenge.

Therefore, we believe that if States were left to develop eligibility systems

without Federal standards and

conditions and without the benefit of enhanced match, States systems may not comport with our ultimate goal; that is, that design, development, implementation, and operation of IT and systems projects are in support of

the Affordable Care Act.

H. Statement of Need

This regulation is important since with the passage of the Affordable Care Act, we expect that changes to eligibility policies and business processes would need to be adopted. System

transformations would be needed in most States to apply new rules to adjudicate eligibility for the program; enroll millions of newly eligible individuals through multiple channels; renew eligibility for existing enrollees; operate seamlessly with newly authorized Health Insurance Exchanges ( ‘‘ Exchanges ’’ ), or with Federal

‘‘ Exchanges ’’ if States choose not to operate a State Exchange; participate in a system to verify information from applicants electronically; incorporate a streamlined application used to apply for multiple sources of coverage and financial assistance; and produce

notices and communications to applicants and beneficiaries concerning the process, outcomes, and their rights to dispute or appeal.

We wish to ensure that that a key outcome of our technology investments is a much higher degree of interaction and interoperability in order to

maximize value and minimize burden and costs on providers and beneficiaries. Thus, we are committed to providing 90 percent FFP for design, development, and installation through CY 2015 or 75 percent FFP for maintenance and operations of such systems. We have provided that States

must commit to a set of standards and

conditions in order to receive the

enhanced FFP. This enhanced FFP

reduces the financial burden on States to 10 percent of the costs compared to the 50 percent financial burden currently in place and ensures that States utilize current technology development and deployment practices and produce reliable business outputs

and outcomes.

I. Accounting Statement

As required by OMB Circular A–4 (available at http:// www.whitehouse.gov/omb/circulars/ a004/a-4.pdf ), in Table 3, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this rule. This table provides our best estimate of the net costs decrease in Medicaid payments as a result of the changes presented in this

rule. Because of the uncertainties identified in establishing the cost estimates, CMS intends to update the estimates with any final rule.



### TABLE 

### 3—A CCOUNTING 

### S TATEMENT 

### : C LASSIFICATION OF 

### E STIMATED 

### N ET 

### C OSTS 

### , F ROM 

### FY 2011 TO 

### FY 2020

[In $ millions]

Category TRANSFERS

Year dollar Units discount rate
Period covered
2010 7% 3%

Annualized Monetized Transfers ........................... Primary Estimate ................... $311.31 $266.55 FYs 2011–2020

Low Estimate ......................... 233.48 199.91 High Estimate ........................ 389.14 333.19

From ....................................................................... Federal Government to State Governments

Annualized Monetized Transfers ........................... Primary Estimate ...................

¥ 189.87

¥ 189.82 FYs 2011–2020

Low Estimate .........................

¥ 142.40

¥ 142.36 High Estimate ........................

¥ 237.34

¥ 237.28

From ....................................................................... State Governments to System Vendors, Integrators

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 433

Administrative practice and procedure, Child support Claims, Grant programs—health, Medicaid, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR chapter IV as set forth below: **PART 433—STATE FISCAL**

**ADMINISTRATION**

1. The authority citation for part 433

continues to read as follows:

Authority: Section 1102 of the Social Security Act, (42 U.S.C. 1302).

**Subpart C—Mechanized Claims Processing and Information Retrieval**  **Systems.**

2. Section 433.110 is amended by revising paragraph (a)(2) to read as

follows:

**§ 433.110 Basis, purpose, and applicability.** 

(a) * * * (2) Section 1903(r) of the Act, which imposes certain standards and

conditions on mechanized claims processing and information retrieval systems (including eligibility determination systems) in order for these systems to be eligible for Federal funding under section 1903(a) of the

Act.

* * * * *

3. Section 433.111 is amended by—

A. Removing paragraph (b)(3).

B. Adding paragraph (c).

The addition reads as follows:

**§ 433.111 Definitions.**

* * * * *


### 68594 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

(c) ‘‘ Medicaid Information Technology Architecture (MITA) ’’ is defined at
§ 495.302.

4. Section 433.112 is amended by-– A. Adding ‘‘ Subject to paragraph (c) of this section, ’’ at the beginning of paragraph (a).

B. Revising paragraphs (b)(2) and (c). C. Removing the cross-reference to ‘‘ 45
CFR 74.171 ’’ and adding ‘‘ 45 CFR 74.27(a) ’’ in its place in paragraph (b)(7).

D. Adding paragraphs (b)(10) through (16).

The revisions and additions read as

follows:

**§ 433.112 FFP for design, development,**

**installation or enhancement of mechanized claims processing and information retrieval**  **systems.**

* * * * *

(b) * * * (2) The system meets the system requirements and standards and

conditions in Part 11 of the State Medicaid Manual, as periodically

amended.

* * * (10) Use a modular, flexible approach to systems development, including the use of open interfaces and exposed application programming interfaces; the separation of business rules from core programming, available in both human

and machine readable formats.

(11) Align to, and advance increasingly, in MITA maturity for business, architecture, and data.

(12) Ensure alignment with, and incorporation of, industry standards: the Health Insurance Portability and Accountability Act of 1996 privacy, security and transaction standards; accessibility standards established

under section 508 of the Rehabilitation Act, or standards that provide greater accessibility for individuals with disabilities, and compliance with Federal civil rights laws; standards adopted by the Secretary under section 1104 of the Affordable Care Act; and standards and protocols adopted by the Secretary under section 1561 of the

Affordable Care Act.

(13) Promote sharing, leverage, and reuse of Medicaid technologies and systems within and among States.

(14) Support accurate and timely processing and adjudications/eligibility

determinations and effective communications with providers, beneficiaries, and the public.

(15) Produce transaction data, reports, and performance information that would contribute to program evaluation, continuous improvement in business operations, and transparency and accountability.

(16) Ensure seamless coordination and integration with the Exchange, and allow interoperability with health information exchanges, public health agencies, human services programs, and community organizations providing

outreach and enrollment assistance

services.

(c) FFP is available at 90 percent of a State’s expenditures for the design, development, installation, or enhancement of an eligibility determination system that meets the requirements of this subpart beginning, and no earlier than, [effective date of the final rule], and only through December

31, 2015.

**§ 433.113 [Removed]**

5. Section 433.113 is removed. 6. Section 433.114 is amended by— A. In paragraph (a), removing ‘‘ (h) ’’ and adding in its place ‘‘ (i) ’’

.

B. Revising paragraph (b).
The revision reads as follows:

**§ 433.114 Procedures for obtaining initial approval; notice of decision.** 

* * * * *

(b) If CMS disapproves the system, the notice will include the following

information:

(1) The findings of fact upon which

the determination was made.

(2) The procedures for appeal of the

determination in the context of a reconsideration of the resulting disallowance to the Departmental Appeals Board.

7. Section 433.116 is amended by— A. In paragraph (a), removing ‘‘ Subject to 42 CFR 433.113(c), ’’ and replacing it

with ‘‘ Subject to paragraph (j) of this
section, ’’

.

B. In paragraph (b), removing ‘‘ (h) ’’ and adding in its place ‘‘ (i) ’’

.

C. Adding new paragraphs (i) and (j).
The additions read as follows:

**§ 433.116 FFP for operation of mechanized claims processing and information retrieval**  **systems.**

* * * * *

(i) The standards and conditions of § 433.112(b)(10) through (16) must be

met.

(j) Beginning and no earlier than, [add in effective date of final rule], FFP is available at 75 percent of a State’s expenditures for the operation of an eligibility determination system that meets the requirements of this subpart. FFP at 75 percent is not available for eligibility determination systems that do

not meet the standards and conditions by December 31, 2015.

**§ 433.117 [Amended]**

8. Section 433.117 is amended by— A. Amending paragraph (a) by removing the phrase ‘‘ all conditions ’’ and adding in its place the phrase ‘‘ all

standards and conditions ’’

. B. Amending paragraph (c)(2) by removing the reference ‘‘ (h) ’’ and adding

‘‘ (i) ’’ in its place.

9. Section 433.119 is amended by— A. Revising paragraphs (a) introductory text.

B. Revising paragraph (a)(1). C. Amending paragraph (a)(2) by removing the reference ‘‘ (h) ’’ and adding

‘‘ (i) ’’ in its place.

D. Revising paragraphs (a)(4) and (c).
The revisions read as follows:

**§ 433.119 Conditions for reapproval;**

**notice of decision.**

(a) CMS periodically reviews each system operation initially approved under § 433.114 and reapproves it for FFP at 75 percent of expenditures if the following standards and conditions are

met:

(1) The system meets the requirements of § 433.112(b)(1), (3), (4), (7) through (16).

* * * * *

(4) A State system must meet all of the requirements of this subpart within the appropriate period CMS determines should apply as required by § 433.123(b).

* * * * *

(c) After performing the review under paragraph (a) of this section, CMS will issue to the Medicaid agency a written notice informing the agency whether the system is reapproved or disapproved. If the system is disapproved, the notice will include the following information:

(1) CMS’s decision to reduce FFP for system operations from 75 percent to 50 percent of expenditures, beginning with the first day of the first calendar quarter

after CMS issues the written notice to

the State.

(2) The findings of fact upon which

the determination was made.

(3) A statement that State claims in

excess of the reduced FFP rate will be disallowed and that any such disallowance will be appealable to the Departmental Appeals Board.

10. Section 433.120 is amended by revising paragraph (b) to read as follows:

**§ 433.120 Procedures for reduction of FFP after reapproval review.** 

* * * * *

(b) CMS will reduce FFP in expenditures for system operations from
75 percent to 50 percent.

11. Section 433.121 is amended by revising paragraph (a) to read as follows:

**§ 433.121 Reconsideration of the decision to reduce FFP after reapproval review.** 

(a) The State Medicaid agency may appeal (to the Departmental Appeals Board under 45 CFR part 16) a disallowance concerning a reduction in


### 68595 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules

FFP claimed for system operations caused by a disapproval of the State’s
system.

* * * * *

**§ 433.130 [Removed]**

12. Section 433.130 is removed. Authority: (Catalog of Federal Domestic Assistance Program No. 93.778, Medical Assistance Program). Dated: October 14, 2010.

Donald M. Berwick,
Administrator, Centers for Medicare &

Medicaid Services.

Approved: October 28, 2010.

Kathleen Sebelius,
Secretary, Department of Health and Human

Services.

[FR Doc. 2010–27971 Filed 11–3–10; 11:15 am]

**BILLING CODE 4120–01–P**